Russia set to default as G7 leaders prepare to announce more sanctions

As Group of Seven (G7) leaders began meeting to discuss more sanctions against Russia, the country was set to default on its foreign debt. Russia owes about $40 billion in foreign bonds. A 30-day grace period on interest payments originally due May 27 expired Sunday.

Despite this, it could take time to confirm a default. Typically, ratings agencies lower the rating to default. However, they have stopped rating Russia during its invasion of Ukraine.

If Russia does default, it would be the first time since the Bolshevik Revolution more than a century ago. On Monday, Kremlin spokesperson Dmitry Peskov pushed back on reports of a default.

“These allegations of default are absolutely unjustified in this case, because back in May, the necessary currency payment was made, and the fact that Euroclear withheld this money and did not bring it to the recipients is no longer our problem,” Peskov said. “There are no grounds to call this situation a default.”

Last month, the Treasury Department ended Russia’s ability to pay its debt back to international investors through American banks. In response, the Russian Finance Ministry said it would pay dollar-denominated debts in rubles and offer “the opportunity for subsequent conversion into the original currency.”

“There can be no objective reasons for a default, there is money and there is a willingness to pay it, either in rubles or under a scheme that may be more convenient for paper holders,” Peskov said last month. “In general, the practice of payments for gas has proven to be convenient for both the seller and the buyers, so why not to use it in the opposite form.”

Russia’s difficulty in paying foreign debt, leading to the default reports, is in part due to sanctions placed on the country by Western institutions like the G7, NATO and the European Union. With the 2022 G7 summit underway, G7 leaders were preparing to unveil plans to pursue a price cap on Russian oil, raise tariffs on Russian goods and impose other new sanctions.

“Our measures will continue to sap Putin’s military-industrial complex of critical components, prevent the central bank’s foreign reserves from propping up an ailing economy and deprive Putin of the resources he needs to wage his war, and hold the kleptocracy to account for its ill-gotten gains,” the White House said in a fact sheet on the sanctions. “The effectiveness of our measures will only compound over time to further isolate Russia from the world economy.”

The Associated Press contributed to this report.